Merchant cash advance vs invoice finance: which one fits where your cash is stuck?

Two fast products get lumped together because both are repaid out of your revenue rather than on a fixed schedule: invoice finance and a merchant cash advance. They solve different problems. The fastest way to choose is to ask one question: where is my cash stuck right now?

Where is your cash stuck: invoices or card takings?

Your situation	Better fit	Why
Trade or B2B work, customers on 20th-of-the-month or 30-day terms	Invoice finance	Advances against bills you’ve already sent
Café, retail, salon, or anything paid mostly by card at the counter	Merchant cash advance	Sized and repaid from card sales
Both, with a big unpaid invoice list and steady EFTPOS	Compare both in dollars	Either could work, cost differs
Few invoices and few card sales	Neither	Look at a line of credit or unsecured loan

If most of your money arrives by bank transfer after a delay, a cash advance has little to work with. If it arrives instantly by card, invoice finance has little to fund. That one test rules out half the confusion.

How do the two actually work?

Invoice finance lets you draw a large share of an invoice’s value shortly after you issue it, rather than waiting for the customer. The balance, less the funder’s charges, follows when the customer pays. You’re repaid from your customers’ money, so the cost is tied to how long invoices sit unpaid.

A merchant cash advance gives you a lump sum now and takes an agreed share of future card takings until a fixed total is repaid. There’s no invoice to fund: it’s an advance against sales you expect to make.

Here’s the trade-off in one line: invoice finance borrows against work already done; a cash advance borrows against sales yet to come.

What does each one cost in dollars?

Illustrative example: a Hamilton plumbing firm has $80k of invoices outstanding on 30-day terms, with no card sales to speak of. An invoice finance facility advances $68k now and charges $2,000 in fees over the roughly 45 days it takes the customers to pay. Total cost: $2,000, and it falls if customers pay sooner.

Illustrative example: a Tauranga café takes about $15k a week on cards and wants $30k for a fit-out repair. A cash advance repays $34,500 in total at an agreed 15% share of daily card takings. That works out at about $2,250 a week, so it clears in around 15 weeks. Cost: $4,500. If takings jump over summer and it clears in 10 weeks, the dollar cost is the same, but you paid it over a shorter period, so the money was effectively dearer.

The lesson isn’t that one is cheaper. It’s that the shape differs: invoice finance cost drifts with customer behaviour; a cash advance’s cost is fixed up front and only the speed varies. Our guide to comparing quotes in dollars shows how to put them on the same footing, and the fast funding comparer can help you line options up.

If you’d like a second opinion on your own numbers, you can check your options here and a person will talk it through with you.

What will a funder look at before saying yes?

The two products ask for different evidence, which is another way to see which one you’re set up for.

For invoice finance, expect questions about:

• your customers: who they are, how reliably they pay, and whether any one customer makes up most of the ledger;
• an aged debtors report showing what’s current and what’s overdue;
• whether any invoices are disputed, part-paid or subject to retentions, since those are usually excluded;
• whether your work is complete: invoices for jobs still in progress are harder to fund than invoices for delivered work.

For a merchant cash advance, expect:

• several months of card settlement history, ideally showing a steady pattern;
• bank statements showing how takings land in the account;
• any existing debits already taking a slice of sales, since they reduce what’s left to share.

Either way, clean records move things faster. A funder that can see three months of consistent data doesn’t need to ask as many follow-up questions, which is often the real difference between a quick yes and a slow one.

Which businesses lean which way?

A few patterns we see across New Zealand trades and retail:

• Builders, electricians, engineers and labour-hire firms bill business customers on terms, often with retentions on construction work. Invoice finance usually matches, but retentions can’t normally be advanced until released.
• Cafés, bars, salons, boutiques and takeaways are paid on the spot. There’s nothing to invoice, so a cash advance is the natural fit, although quiet winter weeks make the fixed total heavier to carry.
• Wholesalers and suppliers selling to both trade and the public are the hardest to call. Price both, and look at which side of the business is causing the squeeze.
• Seasonal tourism operators often have a quiet stretch before the busy season. A cash advance’s repayment follows takings, but check what happens if the busy season arrives late.

Who finds out, and who gets told?

This is where many owners get surprised.

• Disclosed invoice finance (factoring): your customers are told to pay the funder, who may chase late payers. That can change how a customer sees you, for good or bad.
• Confidential invoice finance: you keep collecting as usual and pass the money on. It suits owners who don’t want customers involved, but funders often want tighter reporting.
• Merchant cash advance: customers see nothing. A slice of each day’s card settlement is simply redirected.

If a key customer would bristle at being told to pay a third party, favour a confidential facility or the advance (if you have card sales to support it).

Does the PPSR or my bank’s GSA get in the way?

It can. A funder taking security over receivables, or over your business assets more broadly, can register a financing statement on the Personal Property Securities Register, which any other lender can search. Per the PPSR’s guidance on financing statements, registration lasts for a set term and must name the debtor and the collateral correctly.

If your bank already has a general security agreement over the business, it may claim the same invoices. A funder will usually search the PPSR before advancing, and some will want the bank to agree or step aside. Check before you apply; it’s the most common reason invoice finance stalls. Our guide on getting a second loan with a bank GSA in place covers this in detail.

On GST, the Inland Revenue ruling on selling debts treats factoring as a sale of the debt, and GST accounting can differ depending on whether you account on an invoice or payments basis (BR Pub 06/01). Ask your accountant how a funded invoice will appear in your GST return before the first advance.

What are the common mistakes?

1. Funding the wrong thing. Taking a card-based advance when your income is bank transfers, or the reverse, leaves you with a product that doesn’t fit your cash pattern.
2. Ignoring the squeeze. A cash advance takes its share every day, including quiet days. Check your thinnest weekly takings, not your average.
3. Funding a bad debt. Invoice finance on a customer who’s already slow or disputing the bill can leave you owing the funder anyway under a recourse arrangement.
4. Stacking. Adding a second provider to cover the first one’s repayments. Read about loan stacking before you do.
5. Comparing fees, not dollars. A low-looking fee on a long-outstanding invoice, or a fixed total repaid fast, can cost more than a plainly priced alternative.

A quick decision rule

• Cash stuck in unpaid invoices, customers reliable: invoice finance.
• Cash stuck in slow card sales or you need money for something new: merchant cash advance.
• Both: price each for your real numbers, and avoid running both unless the combined weekly drag is comfortable.
• Neither fits: a short-term loan or line of credit may be the cleaner answer.

Ready to find out which one suits your business?

The tricky part is rarely the definition; it’s matching the product to your actual books. That’s what we do. Tell us where your cash is stuck and we’ll point you at the option that makes sense, including telling you when neither does.

The enquiry takes about 60 seconds, and there’s no credit check when you enquire, so asking won’t touch your credit file. We don’t send your details to a pile of lenders: a real person reads your enquiry, looks at your individual situation and gives you a call. Please fill the form in accurately, as it lets us match you to the right option first time.

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